Survey shows state governments still struggling

State governments are seeing some fiscal relief but are still struggling with a relatively weak economic recovery, according to a survey released by the National Governors Association (NGA) and National Association of State Budget Officers (NASBO).

The NGA-NASBO survey observed states are dealing with declining federal funds for state programs subject to sequestration and continued spending demands in Medicaid, higher education and corrections.Most states plan to moderately increase spending in fiscal 2014, according to the survey.

“State spending in fiscal 2013 is still below the fiscal 2008 pre-recession peak,” noted NGA Executive Director Dan Crippen. “Lower real-spending levels in fiscal 2013 compared to fiscal 2008 indicate state budgets are not growing fast enough to make up for recession-induced declines and inflation. Additionally, governors are aware the federal spending cuts started by sequestration will only get worse.”

States are just now coming off years of constrained budgets, NASBO Executive Director Scott Pattison stressed.Aggregate general fund spending in fiscal 2013 is estimated to increase by 4 percent over the $672 billion in general fund spending in fiscal 2012. Fiscal 2014 recommended general fund expenditures total $728 billion, a 4.1 percent increase over an estimated $699 billion in fiscal 2013.

Medicaid represents the single largest portion of total state spending, and is estimated to account for 23.9 percent of total spending in fiscal 2012.

The survey noted states continue to experience strong gains in personal income tax collections, which are estimated to have increased by 6.2 percent in fiscal 2013 and are projected to increase by 3.7 percent in fiscal 2014.Sales tax collections, however, have not rebounded as rapidly since the end of the recession, increasing by 0.9 percent in fiscal 2012. Sales tax collections are estimated to increase by 3.9 percent in fiscal 2014, the survey noted.

The survey also pointed out that while continuing to outpace retail sales as a whole, many online retail sales are not contributing to state sales tax revenues because in many instances the sales tax goes uncollected. Annually, states fail to collect more than $23 billion from transactions conducted over the Internet or through catalogues.As a result, NGA is pushing for Congress to pass the “Marketplace Fairness Act” that would allow for the collection of online taxes owed to states.

Tax revenue collections in both Tennessee and Virginia, meanwhile, are on an upward trend.Tennessee’s collections, mostly dependent on the sales tax, have been up for 10 consecutive months.“The sales tax growth rate rebounded in May compared to earlier months, mainly because of building materials sales and purchases of new automobiles,” Tennessee Finance and Administration Commissioner Larry Martin said. “Corporate tax collections continued to show strong growth, exceeding budgeted expectations...Tennessee’s sales tax collections suggest that we are continuing to slowly recover from the worst recession on record. Slow recovery coupled with national and global economic concerns call for us to closely monitor collections and expenditures for the remainder of the year.”

In Virginia, Gov. Bob McDonnell recently announced May revenue collections increased by 20.5 percent from May of last year.

“Revenue is up; unemployment is down,” McDonnell, a Republican, said in a prepared release. “This is more good news for Virginia’s economy. Over the past three years, we’ve seen our state unemployment rate fall to 5.2 percent; the lowest mark in Virginia in 4 and a half years. During that time, over 171,000 net new jobs have been created in the Commonwealth during that period; 151,000 of those jobs are in the private-sector. Put simply: More Virginians are working, and that increase in employment is reflected in the growth in state revenue collections....At this moment, it does appear Virginia is on track to meet, and exceed budget projections, and to post a fourth-straight revenue surplus.”For more about the NGA-NASBO survey go to www.nga.org.